Caroline Keen, fund manager of the La Valette Far East Opportunities Fund’s underlying fund - the

BNY Mellon Asian

Equity Fund, speaks about the intricacies of Asian markets and the opportunities they present to the retail investor

As managers of the fund at Newton Investment Management, boutique of BNY Mellon, you enjoy years of experience in managing Asian equities.  What do you describe as the main highlights over these years?

The managers of this fund have over 20 years’ experience. The highlights have been working with very nice, intelligent and interesting people; meeting and investing in some great companies and having reason to travel to many countries across the Asia Pacific region. We have particularly enjoyed travelling to Australia and South East Asia. Seeing companies grow over this period and seeing countries develop and change has been very interesting. Witnessing the extraordinary growth of China has probably been the single biggest highlight.

You believe that Newton’s thematic thinking is particularly well suited in today’s Asian markets which are now rich in intra-regional investment themes.  Can you please elaborate on how this approach meets the new investment challenges and how you actually benefit from the current changing market dynamics?

Our investment themes are long term in nature but their relevance remains current as they are designed to evolve. Hence, themes like “networked world” have been relevant for many years and have taken on new meanings as technology has advanced. Our themes help us identify areas of change in the world and therefore help us capture these trends in our stock picking.

It is forecasted that Asia will surpass Europe’s total wealth within five years.  What opportunities can this offer to the retail investor?

We believe that Asia remains a bright spot, with superior GDP growth to much of the developed world. As per capita incomes move towards world averages, the share of global GDP held by Asian countries will vastly increase. Retail investors can share in this phenomenon by investing in well diversified, Asia-Pacific portfolios designed to capture this growth.

Australia is turning into the fastest growing advanced economies in the world and is currently the 13th largest economy in the world according to nominal GDP.  What opportunities do you foresee in the future?

We are more constructive on the Australian economy than consensus despite the unfolding slowdown in China. The Australian dollar has been resilient and expects it to be supported by exports of commodities. If commodity prices fall due to slower global growth we expect increases in volumes impact would offset this. Within the next 5 years, Australia is expected to be the world’s second largest exporter of LNG. Fiscally, the country is healthy, with almost zero government debt. This is reflected in the country’s AAA credit rating. Steady unemployment trends and decent population growth also make the country attractive. The market structure of many industries is also favourable, increasing the potential for M&A activity.

China and India are moving up the list of countries with the most millionaires.  How can this have an impact on the respective economies and markets?

The influence of China on the rest of the region is unquestionable. China is an important trading partner for all the countries in Asia and the demand for imports for consumer goods, commodities and energy from the rest of Asia will increase. India has traditionally been a more domestic orientated economy, but as the second most populous country in Asia its importance is vast. Demographically, China is currently in a sweet-spot, but this will become a headwind as the population of working age peaks in the next couple of years. India, on the other hand will enjoy many years of growth thanks to its young population, if it is able to employ them productively.

BNY Mellon has announced that Newton, one of its investment management boutiques, was named the winner of the Active Asia-Pacific Equity category at the FT Business Pension and Investment Provider 2012 Awards, held in London in May.  What does this achievement means to you as the Fund Manager?

It is always a pleasure to have recognition for the work we do. Of course we are investing on behalf of our clients, so achieving performance for them is our first priority.

Asian markets should continue to grow in 2012, but at a slower pace than 2011 because of the potential drag the European sovereign debt crises has on global growth.  What, in your view, are the challenges that lie ahead?

The long term opportunities in Asia are still intact. Demographics and urbanisation trends are still broadly positive for the region as a whole. Rising middle classes and disposable incomes are also very positive, giving more power to consumers. Governments, corporates and consumers are in decent financial health – considerably more so than the west. On top of this, authorities have much more scope to use monetary and fiscal policy in order to ease conditions in the shorter term. All of this results in superior GDP growth in Asia than many developed nations.

However, significant risks remain. There are political and economic headwinds in Europe and USA.  Energy security is an ever increasing issue for all countries, and has raised its head again in recent years – a significant oil price shock would be damaging for many emerging markets. Finally, China’s growth rate is slowing and there is a risk that this slowdown could accelerate, adversely affecting the whole region.

Overall, we believe there is still money to be made in the Asia Pacific region. We especially like the ASEAN economies such as the Philippines and Thailand. With the oil price coming off in recent weeks, growth will be less challenged and inflation is not as high a threat as it was.